Even sophisticated inventory systems should be backed up by a regular physical stock count
Why do a physical count?
Easy if small number of locations
Gives valuable evidence that the inventory actually exists
Helps check accuracy of inventory records
If no continuous inventory system it is the ONLY way of knowing the quantity
Discrepancies can help point to control deficiencies (that would otherwise have gone unnoticed)
Helps to see the condition of the stock
Why should the auditor attend the count?
Well she needs evidence about the existence and condition of inventory
Evaluate management’s instructions and procedures
Observe the performance of the procedures
Inspect the inventory
Perform tests counts
Audit work at the Count
Is the count being performed according to managements WRITTEN instructions
If any inventory condition is poor
If any inventory not owned by client is identified and labelled as such
How entries in and out of stock are dealt with during the count
If all items have been tagged as counted
Any differences between their own test count and that of the client..
Test from stock to client records (for completeness)
Test from client records to stock (for existence)
The sequence numbers of the last tags and summary sheets used during the count.
This record will be used after the count to confirm that all inventory items are included in the client’s inventory list
Goods received (& despatch) notes issued before and after the count (for cut-off)
Details of slow-moving or obsolete inventory, or inventory in poor condition
Continuous (Perpetual) counting: several counts during the year
It helps avoid the potential disruption of an annual count at the year end of the reporting period
This is acceptable if....
Client has a system for maintaining accurate and up-to-date inventory records
Every item is counted at least once a year
Counting is well organised and controlled
Counts are documented and reviewed by management
All differences are investigated